LTV Calculator
Lifetime value on gross profit, not revenue — and a plain warning about the two ways the standard formula breaks: constant churn, and negative net churn.
LTV Calculator
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What this result does not account for
- Assumes constant churn, which real cohorts violate.
- Fails entirely at zero or negative net revenue churn.
- An order-of-magnitude estimate, not a measurement.
In short: The formula breaks twice. LTV is 4,980.93 on gross profit against 6,385.81 if you forget margin — and if expansion ever exceeds losses, the denominator goes negative and the formula returns a meaningless negative lifetime value.
Formula
LTV = ARPA × gross margin ÷ churn
negative net churn → the formula fails
[('gross profit', 'never revenue — serving costs persist'), ('1 ÷ churn', 'the assumption doing the most work'), ('negative net churn', 'returns a meaningless negative LTV'), ('discounting', 'a month-60 dollar is not a dollar today')]
Worked Example
- Multiply ARPA by gross margin for monthly gross profit.
- Divide by monthly churn, matching the periods.
- Check the implied lifetime against a real cohort.
- Re-run on net revenue churn if accounts expand.
- Discount it, and abandon the formula if net churn goes negative.
149.00 of monthly revenue at a 78% gross margin is 116.22 of monthly gross profit; divided by 2.3333% churn that is 4,980.86 of lifetime value over an implied 42.86 months. Using revenue instead would give 6,385.81 — overstated by 1,404.88, exactly 1.2821 times, the reciprocal of the margin. A 10% annual discount reduces it to 3,670.14. And the sensitivity is brutal: at half the churn LTV is 9,961.86, at double it is 2,490.46 — halving churn doubles lifetime value exactly.
Strengths & Limits Of This Model
Where this engine is strong
- Uses gross profit and prices the revenue-based error
- Declines rather than printing a negative lifetime value
- Shows the exact inverse-proportional churn sensitivity
Where it stops
- Constant-churn assumption
- Breaks on negative net churn
Practical Use Cases
Sizing acquisition budgets
Producing the LTV that anchors a CAC ceiling.
Prioritising retention
Showing that halving churn doubles LTV.
Board reporting
Presenting LTV on gross profit rather than revenue.
Testing an LTV claim
Checking whether margin and discounting were applied.
Recognising the limits
Knowing when to abandon the formula for cohorts.
Methodology & Editorial Standards
Lifetime value is monthly gross profit divided by monthly churn, with the revenue-based version shown alongside because substituting revenue for gross profit is the most common error and overstates by the reciprocal of the margin. Zero churn is refused, since it implies an immortal customer base. The net-revenue-churn variant is computed only when that figure is positive; where it is zero or negative the page declines and explains that the formula has failed rather than printing a negative lifetime value.
Computation runs in IEEE-754 double precision at full internal precision; rounding to two decimal places occurs strictly at the display layer, so no cumulative drift enters the result. All monetary outputs use accounting presentation — grouped thousands, two decimals, negatives in parentheses — so figures can be transcribed directly into a model or working paper. Division-by-zero and out-of-domain inputs return an em-dash rather than a misleading number.
This engine was reconciled against an independent reference implementation and hand-verified for the worked example above before release. Our full five-stage review process is published on the About Us page.
Disclaimer. This calculator is provided for informational and modelling purposes only and does not constitute financial, tax, legal, medical, or engineering advice. Verify all figures with a qualified professional before acting on them.
LTV Calculator — 10 Expert FAQs
10 analyst-written answers to the questions practitioners actually ask — optimised for voice and answer-engine retrieval.
How do you calculate LTV?
Multiply average revenue per account by gross margin to get monthly gross profit, then divide by the monthly churn rate. Using revenue rather than gross profit is the most common error and overstates the result by the reciprocal of your margin.
Why divide by churn?
Because under a constant churn assumption the average customer lifetime is one divided by the churn rate. It is a clean piece of arithmetic resting on an assumption that is rarely true, which is why the result should be treated as an order-of-magnitude estimate.
What is wrong with the constant churn assumption?
Real cohorts churn hardest in the first month and stabilise afterwards. Applying a single blended rate forever therefore overstates how long customers actually stay, sometimes by close to a factor of two, and every downstream decision inherits that.
What happens with negative churn?
The formula fails completely. If expansion revenue exceeds all losses, net revenue churn goes negative and dividing by it produces a negative lifetime value — meaningless rather than merely inaccurate. Switch to cohort-based cumulative revenue, which needs no denominator.
Should I use customer churn or revenue churn?
Customer churn for a business with flat pricing; net revenue churn where accounts expand and contract, because it captures both. Just be aware that the revenue variant is the one that can go negative and break the arithmetic.
Should LTV be discounted?
For any long implied lifetime, yes. A dollar arriving in month sixty is not worth a dollar today, and adding a monthly discount rate to the denominator handles it cleanly. The longer the lifetime, the more the undiscounted figure flatters.
Why is LTV so sensitive to churn?
Because it is inversely proportional. Halving churn exactly doubles lifetime value, and a small error in a churn estimate produces a proportionally large error in the result. That sensitivity is why retention investment compounds and also why LTV figures should be treated sceptically.
What margin should I use?
Gross margin — revenue less the cost of serving the customer, including hosting, support and payment processing. Not net margin, which deducts fixed costs that do not scale with an individual customer and would double-count them against acquisition.
How long do I need data before LTV is meaningful?
Longer than most people wait. With under a year of history your churn rate has not stabilised and your LTV is an assumption wearing a decimal point. Early on, ninety-day retention is a more honest measure than a projected lifetime.
Should LTV include expansion revenue?
Only through the net revenue churn variant, and carefully. Assuming perpetual expansion produces an ever-growing revenue stream that no cohort sustains indefinitely, which is exactly the failure the negative-churn case exposes.